The present invention relates to the field of originating, pricing, transferring, buying, and selling of options for freight services on the Internet using a web based interface in the form of an exchange model. Basically, the exchange model, which primarily consists of the web interface, is installed at a server which is then link to individual freight carriers' system that wish to provide such a service. Freight fees, particularly in air-cargo are constantly changing as well as rising, with availability subject to present economic situation. Unfortunately at this time, there is neither system nor device for managing the risk of these fees. There are also no exchanges that provide a market for these options to be sold or bought or written if they should come into existence. By using an option, one is guaranteed the exact remaining payment when one wishes to exercise the option. Options contract for freight cargo has to be standardised in terms of units, route and frequency although not perfectly similar. The providers of freight services will also benefit since the need to accurately forecast supply has diminished since the market participants are deciding all the actual demand. Carriers will also be more informed and profitable since option premium payments are up-front payments enhancing cash flow where the clients decided not to exercise them.
Option contracts (“Option”), are known in other fields as a way of locking in a particular purchasing price for a given commodity. Because of this, options can be used by buyers to minimise the risk of rising prices and sellers for falling prices. One of the most widely known types of options is the covered option to purchase stocks or company securities. The issuer of this type of option owns a number of shares of a particular stock. The buyer of this type of option has the right to purchase from the issuer of the options, a predetermined number of shares of the stock, at a predetermined price, at any time before the option expires. This “style” is usually called the American Option while the European Option means, the buyer can only exercise at a fixed date as set out in the terms of sale of the option.
As explained earlier, there has been no acceptable way of minimising the risk of fluctuations in freight services cost and as far as I am aware, options to purchase or pay for freight facilities have never been sold or traded any where in the world. Moreover no system has been developed for determining prices for options for freight facilities and keeping track of the sale and exercise of these options. The current system uses a combination of hurdle rates, bid rate and cut-off price which has to be determined by the manager. Different rates are used to manage different ‘desperation’ points as the time approach for the carrier to depart.